JOHN MACLEAN & SONS ELECTRICAL (DINGWALL) LTD. v. MEHARBAN INTERNATIONAL CO.

1993, No.202
(Civil)

IN THE COURT OF APPEAL

(ON APPEAL FROM HIGH COURT ACTION NO.CL157 OF 1993)

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J U D G M E N T

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Godfrey, J.A.:

1. This is an appeal from an order of Patrick Chan J. made on 18th November 1993, on an application by the plaintiff for summary judgment pursuant to the provisions of O.14 of the Rules of the Supreme Court, giving the defendant unconditional leave to defend the action. Under O.14, a plaintiff who shows that the defendant plainly has no defence to the action is entitled to summary judgment. This has the beneficial effect of shutting out spurious defences raised by a defendant determined simply to put off the day when judgment is entered against him. Order 14 is not, of course, intended to shut out a defendant from putting forward a genuine defence; by O.14, r.3 it is provided that if the defendant satisfies the court that there is an issue or question in dispute which ought to be tried, then the defendant may have unconditional leave to defend the action. Nor, of course, is it intended to provide for a summary trial, on affidavit evidence, of such an issue or question, as too many practitioners seem to believe. The sooner they are disabused of this belief, the better.

2. The present case is familiar in character. It is an action on a bill of exchange, between immediate parties to the bill, being a bill given pursuant to an underlying contract for the sale of goods. The bill here was due to mature on 10th May 1993; it is unpaid; and accordingly, on the face of it, the plaintiff is entitled to payment of the sum due, namely ￡772,402.70 together with interest.

3. The law is well settled. The rule, certainly as between immediate parties, is that bills of exchange are to be treated as cash. The fact that there are cross-claims by the defendant does not afford him a defence to an action on the bill of exchange. However, where a bill of exchange is given on the sale of goods and the consideration has wholly failed, then, as between the immediate parties to the bill, that is a defence to which the courts will give effect.

4. The case for the defendant here is that there has been a total failure of consideration; the goods, the subject of the underlying contract, have justifiably been rejected, and that, accordingly, the defendant has a good defence to the action on the bill. The plaintiff in answer protests that the material put before the court to warrant the defendant being given leave to put forward this defence is insufficient to satisfy the court that the defence is arguable. The judge, says the plaintiff, was wrong to be so satisfied and this court would be wrong to follow him. The material before the court consists of a draft defence the contents of which have now been verified by affidavit. Does it disclose an arguable defence?

5. The defence needs to be looked at in some detail. The defence accepts that the bill was given; that it was due to be paid on 10th May 1993; and that it remains unpaid. The defence details the underlying contract, an agreement of 13th January 1993 whereby the plaintiff agreed to sell and the defendant agreed to buy a quantity of used power and instrumentation cable for the price of ￡741,893 CIF Nantung. Payment of the price was to be on the basis of documents against acceptance within 120 days from date of issue.

6. The defence alleges that, pursuant to the agreement, a total of 655 drums of cable were shipped from Scotland in 1440' containers allegedly. But it is said that upon the opening of the containers at Nantung on or about 20th May 1993, only 643 of the said drums were "outturned". There was, therefore, so it is said, a shortage of 12 drums within the shipment. Further, so it is said, significant discrepancies were discovered between the cable specifications appearing in the contract and the specifications appearing in the packing list accompanying the shipment.

7. It is said that by a fax dated 1st June 1993 to the defendant, the plaintiff offered to issue a credit note in the sum of ￡41,000 to cover the shortfall in delivery of the drums, and by a further fax dated 14th June 1993, the plaintiff responded to the complaints as to discrepancies by offering another shipment of 72 drums free of charge together with a discount of ￡100,000. Neither offer, says the defendant, was acceptable. Further, the defendant says, the entire shipment was rejected by a Chinese consignee to whom the defendant had onsold the goods. On this basis, says the defendant, he was entitled to and did reject the shipment in its entirety as upon a total failure of consideration; and so, he says, the goods were shipped back to the plaintiff on freight collect terms on 29th June 1993.

8. In my judgment, this is material on which this court is entitled to be and ought to be satisfied that the defendant has shown an arguable defence.

9. Of course, the plaintiff may be able to rebut the defence. The plea of total failure of consideration will not be available to the defendant if the plaintiff can show that the defendant has affirmed the contract. It may be that at the trial the plaintiff will be able to show that the defendant did affirm the contract by failing to reject the goods timeously. If, for example, the goods were not rejected before 10th May 1993, it may be open to the plaintiff to say that thereafter it was too late. It is worth mentioning that in one of the textbooks cited to us, it appears to be suggested that the rejection must take place, if an action on the bill is to be defeated, before the date on which the bill matures. However, this is a question into which it is neither necessary nor proper for this court to go at this stage of this action.

10. Another possibility is that the defendant may have lost his right to reject the goods because before doing so he onsold them to the Chinese consignee. It is by no means clear, at this stage of the case, whether that would afford the plaintiff a good answer to the defendant's defence.

11. The essence of the plaintiff's argument is really this: Even if the facts which are alleged by the defendant are true, the defence of a total failure of consideration would not be available to the defendant (1) because its rejection of the goods post-dated the date of maturity of the bill; and (2) because the defendant had affirmed the contract by onselling the goods to its Chinese consignee. I am, for my part, quite satisfied that these are matters which need to be gone into at the trial of the action, not now. Despite the submissions made by Mr Coleman on behalf of the plaintiff, I am satisfied that the material before us is sufficient to enable us to discern here that the defendant has an arguable defence. That being so, I am of the opinion that this court should affirm the decision of the judge giving the defendant unconditional leave to defend and I would dismiss this appeal accordingly.

Power, V.-P.:

12. I concur and have nothing to add.

Litton, J.A.:

13. I agree and would only add this observation.

14. There is clearly no rule of law that the goods must be rejected by the buyer before the bill matures, as was argued by Mr Coleman for the plaintiff. The true rule of law, as I understand it, is that the rejection must be within a reasonable time before a defence based on total failure of consideration can be raised. Arguably, this might have occurred in this case.